Low ten-year S&P500 real total return targets based on current (high) valuations

The S&P 500’s annualized 

real ( above the inflation rate )

total return ( including dividends )

averaged about +6%,  

from 1964 through 2018.

That means the 

S&P500 average,

excluding commissions

and management fees, 

returned six 

percentage points 

more than the 

US consumer price 

inflation rate.

Shiller’s P/E10 

says to expect 

only a +2.6% 

annualized 

real total return

in the next 

ten years. 

          P/E10 =

S&P 500 price divided by 

its companies’ average 

inflation-adjusted earnings 

over the past 10 years. 

-- Various economists 

proposed improvements 

to P/E10 calculations

that are not included here.

Warren Buffett’s MV / GDP 

says only negative -2.0%. 

          

         MV / GDP =

S&P 500’s market value 

as a percentage of the

U.S. gross domestic product. 

-- Buffett said this was: 

“probably the best single measure

 of where valuations stand.” 

James Tobin’s “Q” Ratio 

says only negative -0.5%. 

              

                  Q-Ratio =

Market value of all U.S. equities

( not just S&P 500 companies ) 

divided by the by the cost to replace 

all of the companies’ assets.

Steven Jones’s 
DAMA Composite says 

only negative -4.1%. 

Jones uses the Buffett’s formula,

along with proprietary adjustments

for US demographic changes. 

As America’s population ages, 

for example, this reduces 

economic demand. 

The resulting 
"Demographically 

and Market-Adjusted (DAMA) 

Composite",  
since 1964,

has predicted 
the S&P 500’s 

10-year real returns 

better than 
the three other formulas

discussed here.


Source:
https://www.marketwatch.com/story/how-low-will-the-sp-500-go-buffett-and-shiller-know-2019-01-23